The History Behind the White House Tax Deal

The tax cut pact the Obama administration announced last week has angered a good many Americans. But the pact’s lavish generosity toward America’s rich should not have given anyone a surprise.

Most of the chatter on the tax cut deal the White House has bargained out with GOP leaders in Congress has revolved around the deal’s short-term implications, the dollars that extending all the Bush tax cuts for two years — and declaring a one-year Social Security tax “holiday” — will move into America’s pockets.

Those dollars — about $77,000, on average, for every 2011 taxpayer in America’s richest 1 percent and just under $400 for average taxpayers in the bottom 20 percent — certainly do make for lively reading.

But the deal’s most significant impact, as economist Paul Krugman points out, will almost surely be long-term. We now face “the increased likelihood that low taxes for the rich will be made permanent, crippling policy for decades to come.”

And with this increased likelihood, we may have entered what Wealth for the Common Good co-founder Chuck Collins has just dubbed a “death spiral to plutocracy”: The more wealth concentrates, the more the rich use that wealth — and power — to rewrite our economic rules and concentrate privilege even more.

The White House, by contrast, sees no great danger at all in the extension of the Bush tax cuts to America’s richest. In appearances last week, the President dismissed as “purists” those attacking his willingness to make that extension.

“The American people,” the President pronounced, “didn’t send us here to wage symbolic battles or win symbolic victories.”

Over 60 years ago, a Democratic Party predecessor to President Obama took exactly the opposite tack. That President, Harry Truman, faced a situation not all that different from the imbroglio that confronts President Obama today.

Victorious Republicans, after the 1946 elections, were demanding across-the-board tax cuts that would mostly benefit the nation’s rich. Truman refused to go along and vetoed the tax cuts GOP lawmakers sent him. In 1948, Republicans finally overrode one of those vetoes. But Truman made them pay.

The GOP, Truman would repeatedly charge later that year in his campaign for re-election, “helps the rich and sticks a knife in the back of the poor.”

Truman would go on to score a stunning upset. His consistent opposition to tax cuts for the wealthy had earned him the public trust. That public and Truman, after decades of economic distress, had come to share the same perspective: Vast concentrations of private wealth endanger the national well-being.

America’s most revered political pundit, columnist Walter Lippmann, had reflected on that perspective back in May 1937, after the death of John D. Rockefeller.

The nation, Lippmann noted, would likely never see a fortune as grand as Rockefeller’s ever again. The 97-year-old John D. had “lived long enough to see the methods by which such a fortune can be accumulated outlawed by public opinion, forbidden by statute, and prevented by the tax laws.”

In the United States, Lippmann would add, “sentiment has turned wholly against the private accumulation of so much wealth.”

Truman understood that political reality. He would have never cut the deal that the White House announced last week — or dismissed the struggle to rein in the rich as something merely “symbolic.” That would have been unthinkable.

And that raises an interesting question. Just when did a deal like last week’s tax cut pact become “thinkable” for a Democratic Party President to make? Ironically, that political sea change in “thinkability” has its roots in the Truman years.

As President, after World War II, Truman did eagerly stand up to right-wingers on taxing the rich. But on other fronts, he tried to steal the right wing’s thunder. His moves in that direction, starting with the introduction of “loyalty oaths” in 1947, would set the stage for the hysteria of “McCarthyism” that exploded out in 1950.

The resulting “Red Scare” cast a deep chill over America’s political discourse. Mainstream opinion makers began steering clear of any stance that smacked of “class conflict.” They stopped talking about the rich. Robber Barons, they opined, had become ancient history. America’s class struggles had ended. To move forward, the nation needed simply to concentrate on “growing” the economy.

For mainstream liberal politicians, this emphasis on “growing” the economy had enormous appeal. Growth offered an easy way out of their Cold War box. By chanting the “growth” mantra, they could talk about progress without having to talk about inequality — and risk getting labeled a parlor pink or worse.

By granting “growth” star billing, these politicos could ride out the Cold War unpleasantness, as one University of Missouri historian has noted, “evading tough decisions about the distribution of wealth and power in America.”

In the early 1960s, President John F. Kennedy would take this preoccupation with growth another step further from the New Deal’s egalitarian ethos. High taxes on the rich, Kennedy proclaimed, inhibited growth. An economy “hampered by restrictive tax rates,” he argued, “will never produce enough jobs.”

The Kennedy administration would send Congress a proposal to cut America’s income taxes across the board. The top rate on high incomes, then 91 percent on income over $400,000, would drop to 65 percent under the Kennedy plan.

Congress would eventually approve most of what Kennedy sought. In 1964, the year after his death, his successor Lyndon Johnson would sign into law legislation that dropped the nation’s top tax rate from 91 to 70 percent.

Johnson would evince no further interest in cutting tax rates. LBJ, unlike Kennedy, had cut his political eyeteeth in New Deal Washington. He had grander dreams, a “Great Society,” a “war on poverty.” But these echoes of the New Deal were now reverberating in a fundamentally different political context.

“A generation ago,” an aging Walter Lippmann would note in 1964, “it would have been taken for granted that a war on poverty meant taxing money away from the haves.” But America’s current elected leaders had rejected that idea. They believed, Lippmann observed, that social and economic progress no longer required high taxes on wealthy people, that the “size of the pie can be increased by invention, organization, capital investment, and fiscal policy.”

A political generation later, in 1981, President Ronald Reagan would follow the Kennedy script. Top tax rates, under Reagan, would fall to 28 percent, and Bill Clinton would eventually inherit, in 1993, a 31 percent top rate.

As President, Clinton would almost immediately get that top rate jacked up to 39.6 percent. But he never positioned that increase as any sort of move to trim the wealthy down to a more democratic size. He spoke instead about deficit reduction. Grand fortune would never trouble Clinton.

“We are not a people who object to others being successful,” he would note.

That attitude would remain the dominant ideological strain in Democratic Party circles throughout the George W. Bush years. In a sense, President Obama’s willingness to extend tax cuts to the wealthy, without a fight, merely reflects this decades-old indifference, among top Democrats, to wealth’s concentration.

But the political landscape, amid our Great Recession, has changed. The dangers we as a society invite when we turn a blind eye to the wild chase after grand fortune now stand out more vividly than at any time since the Great Depression.

Reputable and respected pundits and policy makers with mainstream platforms — Nobel laureates like Joseph Stiglitz, former top officials like Robert Reich — have been rigorously linking our current hard times to what Yale political scientist Jacob Hacker calls our “economic hyperconcentration at the top.”

Last week, by challenging the White House tax cut deal, significant numbers of Democratic Party lawmakers served notice that they’re now worrying about that hyperconcentration, too.

In a sense, a desperately needed battle — over the Democratic Party’s attitude toward grand concentrations of private wealth — has at long last been joined. Will Democrats in positions of power continue to wink at the wealthy who have wrecked the economy — or dare to curb their wealth amassing?

That will depend, in large part, on how this new battle plays out.

Sam Pizzigati edits Too Much, the online weekly on excess and inequality published by the Washington, D.C.-based Institute for Policy Studies. Read the current issue or sign up to receive Too Much in your email inbox.